Allan Barber says that Fonterra's problem ought to make those calling for one mega meat company hesitate for a moment

Allan Barber says that Fonterra's problem ought to make those calling for one mega meat company hesitate for a moment

By Allan Barber

It’s a change for the dairy industry to capture the negative agricultural headlines instead of the meat or kiwifruit sectors.

Unfortunately for everybody in New Zealand the dairy industry has become such a critical and large part of our economy that the whey protein botulism scare has already caused, and will continue to cause, major concerns for our global dairy trade.

Only last week Fonterra was again the star of the economy with a $3 billion boost to farmers’ earnings because of a 50c lift in the payout.

Yet this week the company’s very scale has been called into question.

People are now asking whether Fonterra can survive its third health scare in five years.

Even if this is unnecessary scaremongering, another question which would have been unthinkable a week ago is being asked. Is Fonterra too big for the country or, to quote the Waikato Times, its gumboots?

This ought to make those calling for one mega meat company hesitate for a moment, before they find that they are asking for something which may contain the seeds of its own destruction.

Fonterra is one of New Zealand’s few businesses of global scale, if not the only one, so it seems unduly critical to question its size.

After all if only we had some more companies like it, it wouldn’t stand out as such an exception.

Within the dairy industry worldwide, Fonterra is only one of a number of big companies, alongside Nestle, Kraft, Danone and others, but there are some key differences which make its and New Zealand’s position more sensitive to problems like this.

In spite of having substantial parts of its business in South America, Australia and China, it remains essentially a New Zealand company, synonymous with this country. The vast majority of the milk it processes comes from its New Zealand farmer shareholders.

Unlike the other major dairy companies listed, Fonterra is not particularly well diversified, deliberately so. It has specialised in being a supplier of ingredients to food manufacturers rather than creating consumer products and brands, apart from its domestic brands like Anchor and Mainland. To the outside observer this has appeared to be both a successful and logical strategy less demanding of scarce resources than trying to match global FMCG companies like Nestle, Kraft and Danone.

Another weakness is the increasing importance of China as a market with its special emphasis on infant formula. Each of the three health scares, Sanlu melamine scandal, DCD residues in milk and the latest possible presence of botulism, is seen as a serious threat to the lives of Chinese children. Each time New Zealand dairy produce and its clean, green image have been compromised.

Fonterra’s handling of its public relations has not been as surefooted as it should have been. The melamine problem was not Fonterra’s fault, but the last two issues have both suffered from inexplicable delays in fronting up and admitting there is a problem. With DCD the repetition of the phrase ‘there is no food safety risk’ tended to be swamped by the perception of a cover-up because, between Fonterra and MPI, disclosure was delayed for four months.

But this latest scare has been traced to a problem with a pipe more than a year ago and tests have been going on for several months until the problem was disclosed last Friday. The Chief Executive Theo Spierings has flown post haste to Beijing to manage the Chinese fallout, leaving Gary Romano, MD of New Zealand Milk Products to handle the constantly moving PR situation.

This may be the most appropriate division of responsibility and, to be fair, Romano has always been available to talk to the media. But there has been contradictory information emerging at various times and MPI’s Acting Director General has also been making statements without having all the information he might have wanted.

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In addition Fonterra’s Chairman John Wilson has been conspicuous by his total silence which has led to calls for his resignation from some dairy leaders.

The overall impression is of a company which is in complete control neither of its production processes nor its public relations.

This is not good for New Zealand, quite apart from the damage it will have done to Fonterra and its customers, and raises questions about the appropriateness of one company being allowed to have such a disproportionate impact on the country’s global reputation.

Fonterra is by no means the only business to suffer damage to its business or its reputation. Danone subsidiary Nutricia and many other manufacturers of infant milk formula, indeed all New Zealand dairy related businesses, will be adversely affected.

The question has to be asked whether it’s good for New Zealand to be so reliant on the dairy industry and also whether Fonterra itself is in danger of becoming a one trick - or product - pony.

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Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country where he runs a boutique B&B with his wife. You can contact him by email at allan@barberstrategic.co.nz or read his blog here »

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6 Comments

What on earth is your point. Should we diversify into sheeps milk?

.. you could carve out your own niche , and corner the market , by diversifying into ducks' milk ...
 
I have it on good authority that no one else is supplying this product , currently  ...... better rush in to beat the herd  ...........  ummmmm , raft ....

I have thought of that, but risky due to prevalance of bird flu and mad duck disease. Currently considering processing alternative for dehydrated meat and wool ie shake and bake roasts and knitwear, just add water.

bring back Nor'wester...
 

Allan Barber says that Fonterra's problem ought to make those calling for one mega meat company hesitate for a moment. Your view?
No:
 
For example the Irish option is not an alternative:
The Tribunal of Inquiry into the Beef Processing Industry, also known as the Beef Tribunal, was established on 31 May 1991, chaired by Mr Justice Liam Hamilton. It was set up to inquire into malpractice in the Irish beef processing industry, mainly centred around Goodman International, owned and controlled by Larry Goodman. It also examined accusations of special dispensations given by the then Minister for Industry and Commerce, Albert Reynolds, to Goodman.[1]
The Tribunal began hearings on 21 June 1991 and it reported its conclusions in July 1994, at the time the Irish State's longest running inquiry.
 
And Larry again
Efra committee has drawn up a list of Irish traders and manufacturers to come to parliament to give evidence on how horsemeat got into the beef supply chain, but so far most have declined to attend. Those asked include:
• Larry Goodman, the Irish beef baron and chairman/owner of ABP Food group. Its Silvercrest and Dalepak factories in Ireland and Yorkshire sold burgers and mince adulterated with horse to UK supermarkets including Tesco, Asda, and Iceland. The committee has already taken evidence from his chief executive, Paul Finnerty, but wants to question Goodman in person. A Labour Efra member, Barry Gardiner, put it to Finnerty that Goodman's beef companies had been found by a 1994 Irish public inquiry called the Beef Tribunal to have faked records, made fraudulent claims for European subsidies, commissioned bogus official stamps to misclassify meat, cheated customs officials and engaged in institutionalised tax evasion using fake invoices. Goodman's ABP says it is an innocent victim of the recent fraud and that Goodman could not add to evidence already given by the company
 
read this and weep: http://en.wikipedia.org/wiki/Larry_Goodman
Mac Giolla also highlighted a report in the Sunday Press newspaper about a Department of Agriculture raid on one of Goodman's companies, Eirfreeze, in North Wall, Dublin the previous week. Mac Giolla said:

"My information is that it was closed down — and probably this is part of what was referred to by Deputy Desmond — because of very serious illegal activities by a team acting on behalf of one of the Goodman companies — changing labels on meat, changing dates in other words, the dates on which the meat was killed and packed in intervention."

He also made allegations about an IDA grant of £25m given to Goodman, and the involvement of Charles Haughey in relation to the grant:

"It is understood that he [Goodman] has got IDA grants of up to probably £25 million. There is also some evidence which has been brought to my attention to suggest that the Taoiseach himself directly intervened with the IDA in some of these grants to get the IDA to drop their insistence on what is called the performance clause. The performance clause is required by the IDA in their contracts when issuing grants and this performance clause was dropped in the case of grants to the Goodman company. I do not know why that should be so. This is a huge concern. It accounts for more than 42 per cent of the total beef exports from this country. Alone they now probably account for up to 6 per cent of our gross national product."

 

Fonterra is fortunate to date that they have not had a lot of Government oversight. that is why MPI is going through their head office today with a fine tooth comb. Fonterra is reposonsible for all its food quality control and even the selection of the cleaning chemicals and processes it uses. Dairy shed cleaning chemicals are approved by the NZ Food Safety Authority, but factory operations are self managed. No oversight.
DCD was not a Fonterra problem, it was a NZ Food Safety Authority problem. When the ACVM Act 1996 came into force; fertilisers, plant health products, spray tank adjuvants and any other plant health product did not have to be registered and approved for use. Unlike Australia where they have to be registered prior to use. DCD was approved by the EPA (ERMA then) but not approved by the NZ Food Safety Authority, so no work on milk or meat residue studies were required.  DCD was a MAF (MPI) and NZFSA problem, lack of oversight, not a Fonterra problem.
NZ Meat companies are the next for the big fall in our world's markets. The Irish report above is very good reading. Last year MPI removed the need for independent meat inspection. Instead today meat inspectors can be employed by the meat company and subject to managment pressures and preferences. Our meat industry livestock producers should be demanding that their product is inspected by an independent meat inspection service and not by meat company employees. Otherwse we are setting ourselves up for a reputation hit on our meat exports. Again it is the result of decisions by MPI. Just remember the recent audit report on MPI Biosecurity!
 
 

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